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Love yield? Eros 6.5% 2021 currently represents 13.25% to maturity

Yesterday afternoon EROS International, the leading Indian
language film producer and distributor, announced a significant partnership
with US$90bn Reliance Industries (RIL), one of India’s biggest companies.

EROS and Reliance have agreed to partner to jointly produce and
acquire content. RIL has purchased a 5% stake in EROS International at
$15/share (a premium to the $18 closing price on 16th February) and
the EROS CEO, Jyoti Deshpand, is moving to Reliance to spearhead its media and
entertainment unit.

At the time of the announcement EROS’ 6.5% 2021 bonds were trading
around 73-75% indicating significant distress; they subsequently rose to 77-81%
and closed today (February 22nd) at 80.9% which means that those
buying in today would effectively achieve a yield to maturity of 13.25% as the bonds are
due to be repaid at par - 100.

As with any retail bond, the investor is exposed to the risk of a partial
or total loss of the loan they make to the company when purchasing its bonds; a
bond that trades below par in the secondary market reflects the fact investors
would prefer to take back less than they invested rather than run the risk of
default.

The almost 10% rally in the price of EROS’ bond can be seen as a
sign of improved confidence based upon RIL’s $48.75m investment and a belief
that the chances of these bonds being secure until maturity in 2021 has risen
greatly.

Following this news, EROS released its results for the three and nine
months to December 2017; key financial announcements were:

·
Eros has $134.6 million of cash on
the balance sheet as of December 31, 2017.

·
Consolidated revenue for the three months
ended December 31, 2017 was $65.2 million.

·
Operating profit for the three months
ended December 31, 2017 was $16.5 million.

·
Adjusted EBITDA for the three months
ended December 31, 2017 was $23.6 million which resulted in
a margin of 36.2%.

·
Net debt decreased 4.6% to $150.3
million as at December 31, 2017 from $157.6 million as
of March 31, 2017.

Elsewhere, Ladbrokes
Group Finance plc has announced that it is soliciting consents from
holders of its 5.125% bonds due 2022, to authorise certain waivers in respect
of the respective terms and conditions of the notes.

It comes following the announcement on 22nd December 2017
that the Boards of GVC Holdings PLC and Ladbrokes Coral Group plc had reached
agreement on the terms of a recommended offer by GVC to acquire the entire
issued and to be issued ordinary share capital of Ladbrokes Coral.

The acquisition appears to have been viewed favourably by
the ratings agencies, where, as an example, S&P has ‘….affirmed its BB
rating while upgrading the outlook on the group to ‘Positive’ from creditwatch
‘negative’ previously.

The consent consolidation process is broadly similar to that
recently undertaken by Wasps Finance Ltd; in this instance, if bond holders
consent (Option 1) by the deadline (which may vary from provider to provider)
they will receive a consent fee of 30p per £100, which is roughly equivalent to
two weeks coupon.